IRS draws new criticism over $70M employee bonuses

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Washington • Already reeling from a pair of scandals, the Internal Revenue Service is drawing new criticism over plans to hand out millions of dollars in employee bonuses.

The Obama administration has ordered agencies to cancel discretionary bonuses because of automatic spending cuts, but the IRS says it's merely following legal obligations under a union contract.

The agency is about to pay $70 million in employee bonuses, said Sen. Chuck Grassley of Iowa, a senior Republican on the Senate Finance Committee, which has jurisdiction over the IRS.

Grassley says his office has learned that the IRS was to execute an agreement with the employees' union Wednesday to pay the bonuses. Grassley says the bonuses should be canceled under an April directive from the White House budget office.

The directive was written by Danny Werfel, a former budget official who has since been appointed acting IRS commissioner.

"The IRS always claims to be short on resources," Grassley said. "But it appears to have $70 million for union bonuses. And it appears to be making an extra effort to give the bonuses despite opportunities to renegotiate with the union and federal instruction to cease discretionary bonuses during sequestration."

On Wednesday, the IRS said it was still negotiating with the union over the matter. Under the union contract, employees can get individual performance bonuses of up to $3,500 a year.

"Because bargaining has not been completed, there has been no final determination made on the payment of performance awards for the bargaining unit employee population," IRS spokeswoman Michelle Eldridge said in a statement.

"IRS is under a legal obligation to comply with its collective bargaining agreement, which specifies the terms by which awards are paid to bargaining-unit employees," Eldridge said. However, she wouldn't say whether the IRS believes it is contractually obligated to pay the bonuses.

The National Treasury Employees Union says the bonuses are legally required as part of the collective bargaining agreement.

"NTEU has had a negotiated performance awards program at the IRS for decades, pursuant to the law and regulations which specifically authorize agencies to implement such merit-based incentive programs," NTEU President Colleen M. Kelley said in a statement. "NTEU is currently in discussions with the IRS on this matter and other matters resulting from budget cutbacks."

The IRS has been under fire since last month, when IRS officials acknowledged that agents had improperly targeted conservative groups for additional scrutiny when they applied for tax-exempt status during the 2010 and 2012 elections. A few weeks later, the agency's inspector general issued a report documenting lavish employee conferences during the same time period.

Three congressional committees and the Justice Department are investigating the targeting of conservative groups. The FBI has about 12 agents in Washington working on the case, as well as others around the country, FBI Director Robert Mueller told a congressional hearing Wednesday.

Also, key Republicans in Congress are promising more scrutiny of the agency's budget, especially as it ramps up to play a major role in implementing the new health care law.

Much of the agency's top leadership has been replaced since the scandals broke. President Barack Obama forced the acting commissioner to resign and replaced him with Werfel, who used to work in the White House budget office.

In a letter to Werfel on Tuesday, Grassley said the IRS notified the employee union March 25 that it intended to reclaim about $75 million that had been set aside for discretionary employee bonuses. However, Grassley said, his office has learned that the IRS never followed up on the notice. Instead, Grassley said, the IRS negotiated a new agreement with the bargaining unit to pay about $70 million in employee bonuses.

Grassley's office said the information came from a "person with knowledge of IRS budgetary procedures."

"While the IRS may claim that these bonuses are legally required under the original bargaining unit agreement, that claim would allegedly be inaccurate," Grassley wrote. "In fact, the original agreement allows for the re-appropriation of such award funding in the event of budgetary shortfall."

Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said paying the bonuses "looks like a payoff to union workers at a time when we're drowning in a sea of red ink. Given the government guidelines on sequestration, this is certainly an issue that demands further scrutiny."

Werfel wrote the directive on discretionary employee bonuses while he was still working in the White House budget office. The directive was part of the Obama administration's efforts to impose across-the-board spending cuts enacted by Congress.

The spending cuts, known as "sequestration," are resulting in at least five unpaid furlough days this year for the IRS' 90,000 employees. On these days, the agency is closed and taxpayers cannot access many of the agency's assistance programs.

Werfel's April 4 memorandum "directs that discretionary monetary awards should not be issued while sequestration is in place, unless issuance of such awards is legally required. Discretionary monetary awards include annual performance awards, group awards, and special act cash awards, which comprise a sizeable majority of awards and incentives provided by the federal government to employees."

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